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Contact: Center for RE Studies For
Immediate Release
How to Buy
Real Estate at the Right Place
And at the Right
Time
RULES TO REMEMBER
How many times have you heard it said, “The three most
important things to remember when investing in real estate is location, location,
location.” Or as John Paul Getty said there are only two rules to remember,
“Buy when everyone is selling and sell when everyone is buying.” This is calstatecompanies
Standard Operational Procedure (SOP).
THE BENEFITS OF BOTTOM FISHING
Remember, there are always pockets of opportunity for real
estate investments. Good markets exist all over the world at varying times. Concentrate on weak markets, not weak
properties. A weak market is the most favorable condition in which to buy.
Prices are depressed and profit potential is high. Sellers just want to get
out. Buying in a depressed market is called “bottom fishing.”
The
Key to Evaluating Locations
Focus on areas where the local economy is basically strong
and the current downturn is caused primarily by overbuilding. The U.S. Bureau
of the Census publishes building permit activity for buildings five units and up
for Metropolitan Statistical Areas (MSAs). Identify markets with the largest
gains in building permits from one year to another. If you discover a
“construction bubble,” it could mean you’ve located an ideal market. With a
diversified local economy, the overbuilding should be absorbed. A weak market
caused by conditions other than overbuilding should be scrutinized carefully.
Real estate investing often makes money for the second owners
in overbuilt markets, not the first. Builders get paid for building and they will
keep on building as long as they get paid. More often than not, banks are the
ones doing the paying.
The market becomes deluged with an excess of inventory. This
is when you should step in.
Employment
Trends
Base employment is probably the single most important factor
contributing to the economic health of an area. In evaluating employment trends,
be careful of construction employment. During boom-and-bust building activity,
the labor base can become distorted by construction related jobs. If possible,
eliminate construction employment figures when plotting trends. Predicting
growth industries and where they will be located can give you a further indication
of where future employment growth will take place.
Talk with the local city planner to determine the direction
of city growth. Plans for shopping malls, universities, and business parks create
a potential demand for employment and desirable apartment locations.
Demographic
Factors Affecting Apartments
Demographic factors are also important in evaluating demand.
People tend to marry later and divorce is on the increase, both of which result
in a larger single population. In addition, people are living longer. The
number of households is increasing, and the size is decreasing. The
affordability of single-family homes is also decreasing.
Demographically, look for an area in which there are a
higher percentage of females to males, younger and/or older adults as opposed to
middle aged, singles rather than married, smaller families over larger families
and renters over non-renters in evaluating favorable rental areas.
APARTMENT CYCLES
The “when” to buy and sell is just as important as the
“where.” With bad timing you’ll strike out every time. To improve your timing,
you must become familiar with apartment cycles. Calstatecompanies issues a quarterly
report “Market Cycles” that will improve your timing.
Cycles results from the influence supply and demand have on
the marketplace. Economists spend countless hours trying to accurately predict
them, and gurus for the current year are the ones who guessed correctly the
previous year. As long as their crystal ball remains clear, they will continue
to be called on for their advice. One false prediction and they are ousted from
the Nostradamus Hall of Fame.
Apartment cycles are difficult to forecast. Yet, it’s essential
to have projections when buying and selling. Understanding them will give you
the insight to make intelligent decisions.
ABOUT THE AUTHOR: Eugene E. Vollucci, is considered to be one of the
foremost authorities on real estate taxation and investing and has authored books
in these fields published by John Wiley & Sons of New York. He is the
Director of the Center for RE Studies, a real estate research organization and
President of calstatecompanies. To learn more about the Center, please visit
our web site at http://www.calstatecompanies.com
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